Know Your Charity: Safeguard Against Fraud and Terrorist Financing

Understanding Charities: The Good and the Bad

• Legitimate Charities: Most charities genuinely aim to help those in need, providing essential services and support to various communities.
• Fraudulent Charities: Some exploit the goodwill of donors, diverting funds for personal gain or illegal activities.

Case Study: Al Haramain Foundation

In 2004, the U.S. blocked the assets of the Al Haramain Foundation's Oregon branch. The organization was accused of money laundering and financing terrorism, allegedly moving over $100,000 to Chechen militants (source).

How Charities Raise Funds

Charities use various methods to gather donations:

• Public Support: Donations from individuals.
• Government Funding: Grants and subsidies.
• Private Foundations: Financial support from other organizations.
• Service Fees: Charges for services provided.

Common Fundraising Techniques

• Events: Raffles, marathons, and races.
• Direct Requests: In-person, mail, or phone solicitations.
• Advertisements: Newspaper and magazine ads.
• Product Sales: Tickets or merchandise.

Financial Institutions and 'Know Your Charity'

Financial institutions must perform due diligence to prevent misuse:

• Enhanced Due Diligence: Senior management must approve and rate charity accounts as high-risk.
• Site Visits: Officers should visit charity premises and report on their findings.
• Red Flags: Be alert for suspicious activities, such as:
  • Unexplained transfers between charity and personal accounts.
  • Wire transfers to high-risk countries.
  • Lack of typical fundraising activities.

Tips for Donors

Before donating, consider these tips to ensure your money is used appropriately:

1. Avoid Cash Donations: Use checks or credit cards for a traceable record.
2. Research: Investigate the charity's legitimacy. Request literature and ask questions.
3. Beware of Names: Fraudulent charities often use names similar to reputable ones.
4. Resist Pressure: Legitimate charities won't rush you into donating.
5. Secure Payments: Never give your credit card information to unknown individuals.

U.S. Treasury Guidelines

In 2002, the U.S. Treasury issued guidelines for charities to prevent terrorist financing. These guidelines are also useful for companies and individuals donating to charities (source).

Conclusion

Donating to charity is a noble act, but it's essential to ensure your contributions are used for their intended purpose. By following these guidelines, you can protect your donations from being misused and support genuine causes. Always verify before you give, and stay informed about the organizations you support.